A mortgage has never looked more appealing

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Home loans are at their most affordable since last century, with average loan
repayments accounting for 27 per cent of a borrower’s total disposable
income. That is the lowest proportion since 1999, well below the sapping 48
per cent during the peak of the housing market in 2007, and significantly
less than the 36 per cent average over the past 30 years.

One reason for the fall in mortgage costs is the Funding for Lending scheme,
launched by the Government and Bank of England last year, which made more
than £80 billion in cheap finance available to banks to boost their lending
to customers.

As a result, there is a greater choice of mortgage deals on the market now
than at any time in the past five years. This has sparked a huge surge in
the number of borrowers banking their luck and fixing their deals —
approximately 86 per cent of new mortgages taken out in June were fixed,
according to the Council of Mortgage Lenders, the highest number for 20
years.

While the Bank of England’s plan to kick-start the economy by reducing
interest rates to the lowest level in its 319-year history has done savers
no favours, it has been a godsend for anyone with a mortgage. Since 2009,
the Bank’s base rate has been at 0.5 per cent and home-loan interest rates
have tumbled accordingly.

Now is not the time to become complacent, however. The likely way is up for
interest rates.

Mark Carney, the new Governor of the Bank of England, last month hinted that
the base rate will remain at its record low at least until the end of 2016
and is unlikely to rise until unemployment drops below 7 per cent.

But despite the assurances, the markets remain unconvinced. Swap rates, an
indicator of the cost of funding fixed-rate mortgages, jumped shortly after
the announcement. Some forecasters believe interest rates could rise as
early as next year.

Standard variable rates (SVRs), the rate that banks move borrowers on to
automatically when their fixed deal comes to an end, may look like great
value at the moment, but they will shoot up in price should the base rate
rise.

Brokers caution that given differing views on when rates will increase, the
fixed-rate deals available at the moment are unlikely to get any cheaper.
Borrowers sitting on SVRs waiting for rates to fall further would do well to
start shopping for a new loan now.

If you are keen to snap up a great deal, or shelter your mortgage from
unexpected rises, Money Matters will guide you through what you need to
consider. Inside, we reveal the truth about record-low mortgages and why it
is important to read the small print. From high fees, sneaky clauses and a
lack of flexibility, to the inability to “port” a mortgage from house to
house, you might find it helpful to seek expert advice.

We also explain what to consider when deciding whether to fix your rate or opt
for a tracker mortgage. Fixed-rate loans make up the majority of the deals
available now but if you are prepared to gamble on a loan that sticks to the
base rate, you could benefit from super-low monthly repayments.

We discuss whether it is worth overpaying your mortgage. Rather than leaving
your money to dwindle in a low-paying cash account, could you make it work
harder by paying down your loan?

And are home owners as savvy as the statistics would have us believe? How well
prepared are borrowers, should their circumstances dramatically change?